Shipbuilders are starting to feel the pinch brought about by a combination of the oversupply of tonnage and the global financial crisis.
Not only are new orders expected to remain subdued for some time, but restricted access to finance from traditional European lenders has cast doubt on the ability of owners to fund the existing orderbook, increasing the risk of delays and cancellations, according to a report by DBS Vickers.
“We have already seen some high profile bankruptcies like General Maritime in the tanker sector, and with other owners talking of restructuring their balance sheets, the prospects of cancellations and deferments loom for shipyards, as there may be considerable funding gaps for the $364bn worth of ships currently on order,” it says
“Asian banks are only minor players, and with capital market activity likely to be muted in the near term, asset sales and private equity are the only other options for owners to raise money for capital commitments.
“Going forward, we are also concerned about the ability of owners to find financing for newbuilds, likely limiting new order flows.”

Post Lehman world
The report explains that while access to finance is undoubtedly tightening, it is hard to tell how much of the current orderbook is covered.
“Given that a large proportion of owners are privately held companies, it is difficult to fathom how much of that orderbook remains unfinanced and may never see the light of day.
“New orders since the collapse of Lehman Brother have amounted to about $220bn, so while progress payments for pre-crisis orders will have largely been completed, financing arrangements for the remaining payments for the post-crisis orders will come under the scanner and may be difficult to finance in some cases.”
Korea, which regained its crown as the world’s largest shipbuilder from China during the first half of the year, is already feeling the effects of delays.
The country’s yards have reported delays to 24 ships worth some $3bn already this year, according to Reuters.
"There could be more order delays as the business conditions are not expected to be good next year," a spokesman for parent company STX Group told the newswire.
"In the worst case scenario, the global shipbuilding industry could again be roped into the vicious cycle of reduced orders and requests for delaying deliveries, which the industry went through during the 2008 crisis," Daewoo Shipbuilding said in a recent regulatory filing.
Chinese yards have not emerged unscathed with smaller shipbuilders particularly vulnerable to the depressed tanker and bulker markets, DBS Vickers says.
However governmental support should help shield the country’s established yards from a prolonged downturn, it adds.